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On May 16, 2025, Moody’s Ratings downgraded the United States’ long-term sovereign credit rating from Aaa—the agency’s highest designation—to Aa1, citing ongoing fiscal deficits, an expanding federal debt burden, and the mounting costs of debt service in a high interest rate environment. With this action, Moody’s became the final member of the “big three” credit rating agencies to remove the U.S. from its top-tier status. All three agencies now rate U.S. sovereign debt one level below the highest grade, each referencing persistent fiscal and debt-related vulnerabilities as primary factors.

Financial Sense recently spoke with Satyajit Das—former banker, noted author, and commentator on global finance—to discuss the difficult challenge the U.S. faces in reducing its growing debt burden, why more downgrades are likely not far off, and the issues this creates in an increasingly multi-polar world.

The Deteriorating U.S. Fiscal Position

The United States’ fiscal situation has been a subject of mounting concern among economists and market observers. Since 2008, and particularly after Covid, federal deficits have expanded significantly, driven by a combination of tax cuts, increased entitlement spending, and large amounts of fiscal stimulus. According to Das, the cumulative impact has been a ballooning national debt, which now stands at levels not seen since the aftermath of World War II.

Das notes that the primary driver of this increase is not only discretionary spending but also the structural growth of mandatory expenditures—especially Social Security, Medicare, and other entitlement programs. As the population ages and the ratio of retirees to workers rises, these obligations are projected to grow inexorably, further straining public finances.

Escalating Cost of Servicing U.S. Debt

A central theme of Das’s analysis is the accelerating cost of servicing the national debt. Interest payments, once a relatively minor component of the federal budget, have expanded rapidly in recent years. As noted in the interview:

“Interest payments on the national debt have risen from $577 billion in 2019 to $1.1 trillion in 2024—a near doubling over five years.”

(Click on image to enlarge)

Source: U.S. Bureau of Economic Analysis, Federal government current expenditures: Interest payments [A091RC1Q027SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A091RC1Q027SBEA, May 19, 2025

Currently, interest expense is now the third-largest category of federal outlays, trailing only Social Security and Medicare, and is four times higher than the median for other top-rated sovereign borrowers. These dynamics are particularly concerning if inflation remains elevated and borrowers require higher compensation, as well as the potential for further increases in risk premia following credit rating downgrades.

Das underscores that the rising interest burden creates a feedback loop that amplifies fiscal vulnerabilities: each additional dollar of debt now results in higher ongoing financing costs, which in turn increase the deficit, requiring yet more borrowing.

Moody’s Downgrade: More to Come

Moody’s recent downgrade of U.S. sovereign debt from its highest rating reflects these concerns. While the United States remains a benchmark borrower, this move follows similar actions by Standard & Poor’s in 2011 and Fitch in 2023, and signals a growing consensus among rating agencies that the U.S. fiscal position is weakening.

The Moody’s report specifically cited the “deteriorating fiscal position” of the federal government and the lack of a “clear plan” to address medium-term debt dynamics. The agency also highlighted the political impasse over fiscal consolidation, with recurrent brinkmanship over debt ceilings and budget agreements contributing to a perception of increased governance risk.

Das interprets the downgrade as both a reflection of underlying fundamentals and a potential catalyst for further market repricing. He notes:

“It is not inconceivable... that we could be looking at not just a single downgrade, but multiple downgrades all at once.”

Foreign Investors and Sustainability of U.S. Debt

Another area of concern is the continued willingness of foreign investors to finance U.S. deficits. Das points out that, while foreign holdings of U.S. Treasury securities have declined as a share of the total, the absolute scale of foreign investment in U.S. financial assets remains substantial—estimated at around $30 trillion, including $20 trillion in equities and the balance in Treasuries and corporate bonds.

Should confidence in the safety and liquidity of U.S. assets erode, the resulting capital outflows could significantly disrupt domestic funding markets and place further upward pressure on interest rates.

The Diminishing Productivity of Debt

Das further contextualizes the U.S. fiscal challenges within a broader narrative of declining debt productivity. Historically, borrowing supported productive investment and economic growth; today, however, too much debt is used to finance consumption or purchase existing assets, rather than to expand productive capacity.

“In the 1950s in the U.S., one dollar of debt created about one dollar of GDP. By the 1960s, it was around two dollars... Today, it’s closer to four or five dollars. So, you need four to five dollars of debt to create one dollar of GDP. If you keep doing that, it’s just not sustainable.”

This dynamic raises questions about the sustainability of both debt accumulation and the broader growth model, especially if interest costs continue to rise.

Eroding U.S. Credibility in a Multipolar World

Satyajit Das devotes significant attention to the decline of U.S. credibility and influence as the global order becomes increasingly multipolar. He observes that, for much of the postwar era, the United States occupied a central and trusted role in the international system, providing economic leadership, security guarantees, and the world’s primary reserve currency. However, Das argues that recent policy shifts, increased unpredictability, and an apparent disregard for longstanding alliances have fundamentally altered this dynamic.

“The global economic system has had the U.S. in a very central role historically, but that’s gone. In my view, that’s absolutely gone because I don’t think anybody will trust the U.S. ever again.”

Das notes that this erosion of trust is not merely rhetorical. He points to the growing tendency of countries and regions—including the European Union and China—to pursue alternative trading arrangements and financial systems that bypass the United States. He likens this process to a medical bypass: as one major artery is blocked, the rest of the system adapts and finds new pathways.

“America is going to seal itself off, and essentially, the rest of the world will work around it. … They will build trading systems.”

Central to Das’s analysis is the recognition that the U.S. overestimates its indispensability to global trade and finance. He observes that, while the U.S. remains important, its relative share of global trade and economic activity is declining, and its ability to set the terms of international engagement is increasingly constrained. Das is particularly concerned about U.S. actions that undermine the trust underpinning the dollar’s role as the world’s reserve currency:

“It’s not trade that is central to U.S. dominance; it’s the U.S. dollar. … Everything they’ve done is undermining the U.S. dollar’s sanctity as a reserve currency. … What we’ll get is, effectively, a new global system emerging gradually where the U.S. dollar may be part of the equation but not the whole equation anymore.”

He foresees a world in which the United States, by retreating from its previous commitments and acting unilaterally, accelerates the emergence of new alliances, alternative payment systems, and regional trading blocs. Das argues that this transition will be marked by uncertainty and adjustment, as longstanding assumptions about U.S. reliability and centrality are re-evaluated across the globe.

Conclusion

Satyajit Das’s analysis, brought into sharper relief by the recent Moody’s downgrade, underscores not only the urgency of addressing the United States’ deteriorating fiscal position and rising debt service costs, but also the broader consequences of eroding credibility on the world stage. As the U.S. grapples with persistent deficits, mounting interest burdens, and political gridlock, its ability to command trust and centrality in the global financial system is increasingly called into question.

In an emerging multipolar landscape, where alternative economic and financial alliances are rapidly taking shape, the traditional assumption of U.S. reliability and leadership is being reassessed by both allies and rivals. Das warns that, absent credible reforms and a renewed commitment to fiscal responsibility, the U.S. risks not only further credit downgrades and market disruptions, but also a gradual loss of influence as other nations adapt, build new systems, and diversify away from dollar dominance.

The challenge for U.S. policymakers, therefore, is not merely to restore fiscal soundness, but to recognize that credibility—once lost on the global stage—may prove difficult to recover. The stakes now extend beyond domestic economic stability to the very foundations of America’s role in an increasingly multipolar world order.

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